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Mumbai: Mahindra and Mahindra Ltd, India’s largest seller of utility vehicles, has devised a multi-pronged strategy that includes introducing new models to address existing gaps in its product line-up and bridging quality gaps with models of foreign rivals.

The new models, one of which includes a compact sports utility vehicle (SUV), are being jointly developed with Mahindra Ssangyong, the company’s Korean unit. All the new models will start rolling out by the end of fiscal 2015, Pawan Goenka, president of the company’s farm equipment and automotive sectors and now also its executive director, told Mint in an interview on Friday.

“We will have a model at every price point and in every sub-segment," he said. Mahindra hopes these initiatives will help it retain its leadership position in the highly competitive UV segment.

The automotive sector, of which UVs are a part, accounted for 13.4% of Mahindra and Mahindra’s net sales in the quarter ended 30 June. In the same period, Mahindra reported net sales of 43,565 crore, up 24.71% from a year ago.

Competition in the UV segment is expected to intensify even as Mahindra is ceding ground to foreign rivals such as Ford Motor Co. and France’s Renault SA. The local arms of Suzuki Motor Corp., Hyundai Motor Co. and Honda Motor Co. Ltd plan to introduce new models in the segment in the next two years.

In the five months ended 31 August, Mahindra’s market share in the UV segment dropped to 42.9% from 47.7% a year ago, according to the Society of Indian Automobile Manufacturers (SIAM).

Much of the fall was due to competition from Ford’s Ecosport and Renault’s Duster. While the Duster boosted Renault India Pvt. Ltd’s share to 10.5% from 2.18%, the Ecosport helped boost Ford India Pvt. Ltd’s market share to 7.13% from 0.31% in the same period from a year earlier.

UV sales in India fell 17.5% to 37,010 units in July, the first monthly drop in four years, according to SIAM.

Mahindra’s sales were also hurt by the levy of additional 3% cess on UVs in February. The reducing gap between the price of diesel and petrol also played a role in discouraging consumers from buying diesel-run vehicles.

Many brokerages have cut forecasts on concerns that Mahindra is not introducing new models to tackle competition in the UV segment.

In a 22 September report, Aditya Makharia of JPMorgan said he was lowering the stand-alone fiscal 2014-15 earnings per share of the company by around 12% “to factor in the decline in UV segment sales". He added that the key down-side risks for the stock include further market share losses in the UV segment and any sharp increase in diesel prices.

In a 14 August report, analyst Joseph George from brokerage India Infoline Ltd, said recent UV launches (the XUV500, the Quanto and the Rexton) are seeing a sharp drop in volume. “The initial excitement for these models seems to have died down as consumers move from one new model to the next. Novelty alone seems to be driving sales in a weak market. The fact that Mahindra and Mahindra does not have a new UV model launch before FY16 will add to the problems, until we see a pick-up in the industry. We cut our FY14 (fiscal 2014) UV growth estimate for M&M from 10% growth to 10% decline," said the report.

Analyst Ashwin Patil of LKP Securities Ltd in a 15 August report wrote that even though elections may spur demand to some extent, the macro picture for Mahindra and Mahindra’s SUV division remains bleak “as no new launches are lined up till FY16, which would allow competition to creep into the market share of M&M".

The brokerage cut its volume estimates on the UV side and now expects around 5% and 6% growth in fiscal 2014 and fiscal 2015, respectively.

To be sure, the maker of the Scorpio and Bolero models, is working towards eliminating the so-called quality gap with the foreign rivals, some of which Goenka said “is real, rest a perception issue". According to him, the company has managed to “close the gap" over the years, but is yet to “eliminate it".

Despite the competition, Mahindra will continue to focus solely on UVs and does not plan to launch a small car or a sedan—at least in the foreseeable future. “Right now, we are not doing cars. Verito (sedan) is an exception that came as a part of the joint venture (with Renault). We will not launch any new small car or sedan," said Goenka. “The competition in the UV segment is here to stay. Nobody can wish it away," he concluded, adding: “If we cannot compete with the competition, then we have no right to be on top."

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